REDUCING THE TRANSPORT RISK
Reducing the Transport Risk in US Manufacturing Supply Chains
US manufacturers that focus on protecting their production, supply chain operations, profit and loss, and customer experience are looking for alternative approaches to traditional truck and rail transportation to remove risk as well as cost. For example, paper manufactures in Wisconsin are asking international suppliers to export raw materials to ports such as Green Bay that are in close proximity to their plants because tight transportation capacity and labor shortages are leading to breaks in production and inconsistent product flows to customers.
US Surface Transport to Remain Tight
We are in a “carrier economy” and it’s predicted by the industry analysts, such as Gartner, that the capacity challenges and transportation prices will continue to climb. The president and CEO of J.B. Hunt mentioned, “This is on of the highest periods of turbulence and volatility in supply that we have ever experienced and we don’t think it will abate any time soon.” While he was quoted in the fourth quarter of 2017, it is our experience that the congestion is worsening, proving that there’s no end to a market with low truck supply and high freight demand. In fact, reports from FTR Transportation Intelligence show the national average load-to-truck ratio for all freight is around 14.1, nearly doubling last year’s. Active truck utilization is at 100 percent, and spot rates are hovering near record highs.
Many US manufacturers are in panic mode as they’re seeing squeezed profit margins. More importantly, they’re seeing service performance to customers decline, due to tightened capacity and an inability to secure trucks. They’re also learning that rail is no longer a viable solution, as boxcars and freight are deferred randomly and without warning. When this happens, there is no way to confirm a planned arrival to a destination, leaving both the shipper and consignee in the dark. Additionally, capacity is inconsistent: 10 boxcars may be scheduled as available to you, however, one week you may receive two and the next week you may receive eight.
The Costs of Not Bringing Materials Closer to Plants
These common disruptions decrease available capacity and increase operating costs throughout the network. One of our in-plant warehousing clients, a consumer packaged goods (CPG) manufacturer in Green Bay, sees seven to 12 annual supply chain disruptions resulting from rail issues. This CPG manufacturer has dedicated logistics managers watching the rail reports and confirming that rail cars en route will be delivered. When deliveries by rail are held up, managers scramble, call and email suppliers looking for their product, and arrange an expedited truck delivery. This stops production lines and adds cost to both the supplier and to our client, as it is expediting product delivery to avoid further production delays.
Despite “missed” or “delayed” shipments due to challenges with traditional truck and rail transportation, manufacturers fail to bring raw materials inventory closer to plants or their customers. For example, manufacturers in northern Wisconsin continue to use ports in Milwaukee, where they are reliant on trucks and rail for the final miles, instead of using the new Port of Green Bay, where they can easily secure a shuttle for lower cost and risk. Similarly, international shippers are importing into Mobile, Alabama, and relying on rail transportation to Wisconsin plants simply because it’s the way they’ve always done it.
According to Deloitte reports, these manufacturers that are stuck in the status quo are spending 50 percent more than those manufacturers who are proactively protecting their supply chains because they’re wasting time and resources to find trucks in emergency situations, or expediting product to keep operations running.